Mario Draghi, president of the European Central Bank, has insisted the euro zone’s recovery remains on track, despite acknowledging threats to growth had “heightened” due to crises in Ukraine and the Middle East.

The ECB kept rates on hold for the second month in a row and offered no hint that it had moved closer to embarking on broad-based asset purchases, known as quantitative easing.

Mr Draghi acknowledged that momentum had weakened in the euro zone in the second quarter and an escalation of political tensions would inflict further damage. He maintained a weak recovery would continue and longer-term inflation expectations remained anchored to the ECB’s target of below but close to 2 per cent.

The ECB president called on governments to boost the recovery, blaming a lack of labour market reform and excessive business regulations in Italy for its fall back into recession.

Gilles Moec, of Deutsche Bank, said Mr Draghi’s remarks suggested “governments should focus on their own shortcomings rather than asking the ECB for more”.

June measures

Mr Draghi said monetary policy would provide more support in the months ahead as the package of measures announced in June took full effect.

The central bank will hold the first of the six targeted longer-term refinancing operations, or TLTROs, which require banks to sign up to commitments on lending and are widely seen as the most important strand of the June package, in September.

Market estimates of a “sizeable” take-up of the offer of cheap, fixed-rate, four-year loans, of between €450 billion and €850 billion of a possible €1 trillion, were confirmed by the ECB president.

The euro, which has fallen by more than 2 per cent against the dollar since the start of June to $1.335, was likely to depreciate further, supporting euro zone companies by lowering the price of their products against competitors outside the currency area.

“Markets have perceived that . . . monetary policies in the euro [zone] and the United States are, and are going to stay, on a diverging path,” Mr Draghi said. “The fundamentals for a weaker exchange rate are much better than they were two or three months ago.”

The US central bank is expected to stop buying US Treasuries in the autumn and to raise rates towards the middle of next year. – Copyright The Financial Times Limited 2014